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Money Talks Volume 3

27 September 2016

Canada’s economy is hanging on for dear life. This edition of Money Talks looks at whether there’s light at the end of the tunnel.

Interest rates will be lower for longer. That is the underlying message of Bank of Canada (BOC) Governor Stephen Poloz,[1] who is trying to maintain a sense of calm as Canada’s economy struggles to regain momentum after its worst quarter in six years.

Volume 3 of Money Talks explores the recent performance of the Canadian economy and how this reflects on personal finance, mortgages and interest rates.

Personal Finance

The month of September was especially volatile for Canadian stocks, which suffered through the same ups and downs as their counterparts on Wall Street. After a solid summer, Canadian portfolio investors stomached through a lot of volatility during the month before eventually breaking even.

Canadian retail sales fell 0.1% in July, disappointing analysts’ expectations of a 0.1% gain. Painfully, it was the third consecutive month that retail sales fell, a warning sign for an economy fueled by consumer spending. According to Statistics Canada, sales declined in five of the 11 major retail sub-sectors.[2]

Real Estate

Home sales fell in August for a fourth consecutive month, dragged down by plunging Vancouver sales after the BC government introduced a 15% tax on foreign buyers. Nationally, home sales declined 3.1% in the 12 months through August. It was the largest monthly drop since December 2014.

Home resales in Greater Vancouver plunged 19%, the sixth straight month of declines.[3] Experts say Vancouver house prices are due for a 10% correction, helping to rebalance a market that has made owning a home a pipe dream for most locals.


Ultra-low mortgage rates continue to fuel housing demand across Canada. According to the CMI rates table, the average commitment rate on a 1-year fixed closed mortgage is 2.29%. The average commitment rate on a fixed-year term is 2.34%.

While mortgages are not expected to rise anytime soon, insurance premiums are likely to inch higher in hot housing markets due to more stringent regulations for Canadian mortgage insurers. According to National Bank Financial, this means Canadians will be paying higher premiums for home insurance.[4]

Interest Rates

The Bank of Canada has remained on the sidelines since July 2015, when it slashed its overnight rate by 25 basis points to 0.5%. As Mr. Poloz has eluded, there’s virtually no chance that rates are going to rise anytime soon.

“The consensus now doesn’t have the Bank of Canada hiking interest rates until 2018,” says Douglas Porter, chief economist at BMO Nesbit Burns.[5]

For most rate-watchers, developments in the United States are much more interesting. The Federal Reserve held off on raising rates in September, but indicated that the case for tighter policy had “strengthened.” The US central bank said it still expects one rate increase before year-end.



[1] Tim Clayton (September 20, 2016). “BOC Poloz: Interest Rates Will Stay Lower For Longer.” Economic Calendar.

[2] David Parkinson (September 23, 2016). “Inflation rate slumps to lowest in two years; retail sales slip.” The Globe and Mail.

[3] Tasmin McMahon (September 15, 2016). “Plunge in Vancouver drags down Canadian home sales totals.” The Globe and Mail.

[4] Barbara Shecter (September 26, 2016). “Canadian homebuyers expect to bear costs of tighter mortgage insurance rules.” Financial Post.

[5] Bob Carrick (September 11, 2016). “What’s ahead for mortgage rates in Canada? Watch the U.S. Fed.” The Globe and Mail.

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